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PUBLIC AND PRIVATE SECTOR PARTNERSHIP RELATIONSHIPS: FUNDAMENTAL ISSUES, PROMISING DIRECTIONS AND METHODS OF RUSSIAN-AMERICAN COLLABORATION IN THE FIELD OF NON-PROLIFERATION OF NUCLEAR WEAPONS

Rear-Admiral Vyacheslav M. Apanasenko,221

Russian Academy of Rocket and Artillery Sciences

“We do not reject the idea of public-private partnership, on the contrary, we welcome it.”

Vice-Prime Minister of Russia

S.B. Ivanov, November 8, 2007222


The above quotation underscores the idea that strategies and programs directed only toward utilizing federal funds will not enable government agencies to implement large-scale projects. The joint project under the aegis of the U.S. National Academies (NAS) and the Russian Academy of Sciences (RAS) dedicated to the future status of nuclear security in the year 2015, undoubtedly falls under the rubric of such large-scale projects.

At a seminar in August 2007, “The Fundamental Issues, Long-Range Trends, and Tools for Russian-American Collaboration in the Sphere of Non-proliferation of Nuclear Weapons,” questions concerning new tools and new efforts for creating committees on both the Russian and the American sides were raised. In particular, the idea of considering the possibility of developing proposals for the effective interaction between government agencies and private business for the purpose of solving problems related to nuclear security in the year 2015 was expressed.

Members of the Russian and American committees agreed with this approach but noted that the term “nuclear security” needs to be treated more broadly, with the understanding that it includes real security as it relates to the production and utilization of nuclear components both in the military and in the civilian sectors, as well as security in general, bearing in mind the elimination of other existing threats as well. Thus, the issue of partnership relations between the government and the private sector becomes relevant to making decisions about fundamental issues, long-range trends, and tools for Russian-American collaboration.

221

V. Apanasenko’s diverse professional experience includes affiliations with current Russian industry and financial institutions. This experience has also informed his perspectives reflected in this paper.

222

“Holdings of four aviation engine builders will be developed – V. Putin,” Press-conference held August 11, 2007. For further information, see www.prime-tass.ru/news/show.asp?id=710236&ct=news, accessed July 13, 2008.



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PUBLIC AND PRIVATE SECTOR PARTNERSHIP RELATIONSHIPS: FUNDAMENTAL ISSUES, PROMISING DIRECTIONS AND METHODS OF RUSSIAN-AMERICAN COLLABORATION IN THE FIELD OF NON-PROLIFERATION OF NUCLEAR WEAPONS Rear-Admiral Vyacheslav M. Apanasenko,221 Russian Academy of Rocket and Artillery Sciences “We do not reject the idea of public-private partnership, on the contrary, we welcome it.” Vice-Prime Minister of Russia S.B. Ivanov, November 8, 2007222 The above quotation underscores the idea that strategies and programs directed only toward utilizing federal funds will not enable government agencies to implement large-scale projects. The joint project under the aegis of the U.S. National Academies (NAS) and the Russian Academy of Sciences (RAS) dedicated to the future status of nuclear security in the year 2015, undoubtedly falls under the rubric of such large-scale projects. At a seminar in August 2007, “The Fundamental Issues, Long-Range Trends, and Tools for Russian-American Collaboration in the Sphere of Non-proliferation of Nuclear Weapons,” questions concerning new tools and new efforts for creating committees on both the Russian and the American sides were raised. In particular, the idea of considering the possibility of developing proposals for the effective interaction between government agencies and private business for the purpose of solving problems related to nuclear security in the year 2015 was expressed. Members of the Russian and American committees agreed with this approach but noted that the term “nuclear security” needs to be treated more broadly, with the understanding that it includes real security as it relates to the production and utilization of nuclear components both in the military and in the civilian sectors, as well as security in general, bearing in mind the elimination of other existing threats as well. Thus, the issue of partnership relations between the government and the private sector becomes relevant to making decisions about fundamental issues, long-range trends, and tools for Russian-American collaboration. 221 V. Apanasenko’s diverse professional experience includes affiliations with current Russian industry and financial institutions. This experience has also informed his perspectives reflected in this paper. 222 “Holdings of four aviation engine builders will be developed – V. Putin,” Press-conference held August 11, 2007. For further information, see www.prime-tass.ru/news/show.asp?id=710236&ct=news, accessed July 13, 2008. 163

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Moreover, it is obvious that this position might be utilized for virtually all questions brought to light at past seminars and set forth in Overcoming Impediments to U.S.-Russian Cooperation on Nuclear Non-Proliferation: Report of a Joint Workshop.223 It was noted therein that “(b)arriers and impediments to cooperation take many forms, but the impediments identified within the workshop can be understood in terms of six kinds of issues: 1) political issues, 2) legal issues, 3) issues related to scientific and technical cooperation, 4) issues related to program organization and management, 5) issues related to the legacy of the Cold War mentality, and 6) funding issues.”224 An attempt has been made in this paper to address only two types of issues named above: (4) organization and management issues, and (6) funding issues. PRIOR HISTORY OF THE ISSUE: CONTENT AND FAVORABLE EXPERIENCES OF PUBLIC-PRIVATE SECTOR PARTNERSHIPS The necessity of developing public-private partnerships in our country is supported by the Addresses of Russian Federation President Vladimir V. Putin to the Federal Assembly of the Russian Federation, and in his speech at the XIV Congress of the Russian Union of Industrialists and Entrepreneurs (2004).225 The Chairman of the Russian Government has on many occasions declared the necessity to develop public-private partnerships as an effective mechanism for achieving government objectives. The development of this kind of partnership has also been given consideration in a variety of government documents and programs.226 In addition, numerous dissertations have been written and defended on this very subject.227 However, despite the fact that both government and business place high hopes on public- private partnerships, viewing them as important tools for increasing national (and regional) competition, the development of mechanisms for public-private partnership in Russian practice is moving ahead at an extremely slow pace. The failure to resolve a number of methodological issues concerning the transition to partnership relations between government and business, the absence of the experience necessary for such partnerships, the lack of sufficient legislative and regulatory bases on all levels, and bureaucratic impediments hamper the establishment of PPP in the Russian Federation. Moreover, even the question of terminology remains open. Public-private partnerships are a comparatively new phenomenon in the political and management practices of the new Russia. Various aspects of the essence of this concept, as well as processes for the development of technology for the operation of public-private partnerships 223 Joint National Academies’ – Russian Academy of Sciences’ Committees on U.S-Russian Cooperation on Nuclear Non-Proliferation, Overcoming Impediments to U.S.-Russian Cooperation on Nuclear Non-Proliferation: Report of a Joint Workshop, (Washington, DC: National Academies Press, 2004). The full text of the report is available at http://www.nap.edu/catalog.php?record_id=10928; accessed April 6, 2008. 224 Ibid, p. 23. 225 Materials of the XIV Congress of the Russian Union of Industrialists and Entrepreneurs (2004). For further information, see www.atiso.ru/content_files/doc/soisk/Xardinoj.doc, accessed May 26, 2008. 226 Federal Law “On Concession Agreements,” No. 115, of July 21, 2005. For further information, see www.government.ru/content/ and http://govportal.garant.ru; accessed July 13, 2008. 227 For furthermore information, see http://www.atiso.ru/content_files/docs/soisk/Xardinoj.doc; http://www.RosenkovDA.doc; and http://www.mesheryakova.pdf. 164

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have been rather extensively studied by foreign researchers, among whom the works of T. Barnekov, R. Boyle, L. Dzhezirusky, M.B. Gerrard, S. Kitadzim, F. Cook, and D. Rich stand out.228 The conception of a public-private partnership is determined to a large extent by the nature of the government, relative to which there are two basic points of view in western scientific literature. The first reflects the image of the government as an instrument for ensuring hegemony of the ruling class, and the second enunciates the neutrality of the government and its service for the good of the entire society. In keeping with this understanding of the essential nature of government, some authors assert that a public-private partnership is an instrument created by the government and responsive to the interests of the dominating class, while others argue that partnership is a mechanism that reflects the interests of a wide range of social groups. The subject of public-private partnership in Russia originally appeared in a very broad context and was applied to specific industries: transportation, road construction, technology, and investments among others. A considerably large interest in the subject of public-private partnership has been demonstrated by the Council on Competition and Entrepreneurship of the Russian Federation, as well as by several government agencies, expert councils created to address this issue, local governing bodies, and consulting companies. Authoritative scholars maintain that “the analysis of speeches given by Russian officials on the question of public-private partnership make it possible to direct interest toward this subject, but it does not make possible a determination of the context of this term. It is understood that the term relates to some kind of collaboration between government and business; however, in general this type of collaboration is possible even without any special terminology.”229 The characteristics of a public-private partnership both as a phenomenon and as a concept are examined in the works of O.S. Belokrylova, V.G. Varnavsky, L.I. Efimova, V.A. Mikheev, T. Sannikova, B. Stolyarov, and A. Sharmov.230 The important political and legal aspects of a public-private partnership in Russia have been examined in the works of M.V. Vilisov, S.S. Sulakshin, E.A. Khrustaleva, and V.I. Yakunin.231 Nonetheless, the substance and forms of public-private partnerships, as well as the means of their effective utilization within the Russian government administration and economic policy to date have not been sufficiently researched. Contemporary political science has not adequately encompassed such issues as: possible utilization in Russia of international experience relating to public-private partnerships; various implementation mechanisms for these projects; comprehensive development of regulatory and legal foundations for public-private partnerships; securing of government support and guarantees for business with respect to funds invested; a higher level of communication among all parties involved, and active public outreach in this process.232 Issues surrounding partnership relations between the public and private sectors in the context of fundamental problems, long-range trends, and tools for Russian-American collaboration in the sphere of non-proliferation of nuclear weapons have become a topic of interest thanks only to the general development of intergovernmental relationships in implementing joint programs. First and foremost are programs to reduce the risk and eliminate 228 For further information, see http://www.atiso.ru/content_files/docs/soisk/Xardinoj.doc; accessed May 26, 2008. 229 Ibid. 230 Ibid. 231 Ibid. 232 Ibid. 165

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the repercussions of the Cold War. In the course of implementing these and other programs, the parties have gained favorable experience, improved the quality of their relationships, and achieved a higher level in their development. It is for this reason that the joint committee of the RAS, and NAS has reached the following conclusions and recommendations: Cooperative efforts are at a turning point. No longer should or can the Russian Federation be solely the recipient of assistance. It is now able, politically and economically, as well as militarily, to take its place as a true partner of the United States in the effort to contain the proliferation of nuclear weapons in the world. It is therefore time for the two sides to forge a full partnership in this regard. To accomplish this, a two-pronged program is required. First, the remaining impediments to existing and contemplated programs of cooperation must be removed or, at the least, their effects must be diminished. Second, a long-term approach to the establishment of a true partnership is required to reduce and eliminate the threat of the further proliferation of nuclear devices, the material needed to construct them, and their delivery systems. As the nations with the world’s largest stockpiles of nuclear weapons and fissile material, the United States and Russia have not only an opportunity but also an obligation to strengthen their cooperative nuclear non-proliferation programs and make them as effective as possible.233 These conclusions are not only enumerated in the final documents of the NAS-RAS joint committees, they also may serve as a methodological foundation for developing new tools for collaboration. The joint committees of scientists from the RAS and NAS, on behalf of the joint committees on Overcoming Impediments to U.S.-Russian Cooperation on Nuclear Non- Proliferation, noted on this matter that: (J)ust as scientists in different countries need to work together more closely to address the technical challenges of the new security environment, new impediments to international scientific collaboration are emerging. Impediments to the implementation of joint nonproliferation and threat reduction programs are particularly problematic and counterproductive. These impediments to cooperation, and the political, bureaucratic, and structural problems that are behind them, are so complex and interwoven that no one solution will solve the problems. Instead, decision-makers need a variety of options upon which they can draw to address specific problems.234 It is indeed true, and analysis shows, that even given the current state of affairs, there are examples of effective and constructive collaboration to find solutions to issues of interaction. This paper will examine three of them: a resolution of the North Korean problem; collaboration between the European Bank for Reconstruction and Development (EBRD) and Russian agencies; and meetings among technical experts of the working group of Russia and the United States on civilian nuclear power engineering. 233 Overcoming Impediments, p. 6. 234 Ibid, p. 102. 166

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RESOLUTION OF THE NORTH KOREAN PROBLEM As is well known, at one time the United States banned American financial institutions from conducting financial transactions through Banco Delta Asia, located in Macao. The Treasury Department declared, that “the bank is a spineless pawn in the hands of the North Korean government.”235 U.S. sanctions against the bank and several other companies from North Korea became the primary stumbling block to the resumption of international negotiations concerning North Korea’s nuclear program, which made the unfreezing of accounts and access to their funds one of the primary conditions for the country’s nuclear disarmament. Pyongyang agreed to shut down the nuclear reactor in Yongbyon only after funds were deposited into accounts of the Democratic People’s Republic of Korea (DPRK). Thus, the problem could not be resolved only at the government level. The situation was mitigated when private groups rendered assistance in concert with the public sector. Money was transferred from Macao to the Federal Reserve Bank of New York, forwarded from there to the Central Bank of Russia, and then transferred to the Far Eastern Commercial Bank (“Dalkombank”), where North Korea maintains accounts.236 Moreover, to the credit of the parties involved, the primary bureaucratic delays were eliminated relatively quickly at the government level. Hence, in June 2006, the U.S. Treasury Department gave a written guarantee not to place financial sanctions on the Russian bank that was to participate in the transfer of monies to the DPRK from the Bank of Macao. Overall, thanks to a rational combination of public and private capabilities, a complex problem with North Korea was resolved, and the nuclear reactor in Yongbyon was shut down.237 COLLABORATION BETWEEN THE EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT AND RUSSIAN ENTITIES The EBRD has had a long and fruitful collaboration with a variety of Russian entities. The first step was taken several years ago and mostly led to collaboration in the banking sphere. The EBRD closely followed the development of private banks in Russia. It analyzed their work, chose the most promising banks for future collaboration, and with their consent conducted a very detailed audit of their financial activities. In the majority of cases, given positive results of the audit, the EBRD obtained a portion of the bank’s stock, and became one of the bank’s owners. Such actions as a rule produced good results. For example, the EBRD and “Transkapitalbank” (closed JSC) have been collaborating for an extended period of time, and this collaboration has allowed the latter to actively promote its products to small and medium-sized businesses. The investment corporation DEG became part of the Transkapitalbank capital in March of 2007. This collaboration should make it possible for the bank to strengthen its position in international 235 “Investigation of Banco Delata Asia, located in Macao, is Still Underway in the U.S.” K2Capital, June 5, 2006, available at http://www.k2kapital.com/news/fin/detail. 236 “North Korea Withdrew Money from Bank in Macao,” June 14, 2007, available at http://www.nr2.ru/economy/124045.html. 237 For further information, see the paper by Joel Wit in this volume. 167

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markets and to reduce the cost of international borrowing. The entrée of the EBRD and DEG into the cast of owners signifies a high evaluation of the strategy and long-range developments for the bank on the part of western investors. The second favorable factor is the fact that the dynamic development of a branch network and the rapid growth in the volume of lending transactions has not affected the qualitative characteristics of the bank’s lending portfolio. The index for outstanding debt for the credit portfolio is generally just below market rates, and on January 4, 2006, it equaled 0.93 percent.238 This notably positive influence on the credit rating for Transkapitalbank causes the bank’s own capital to be of high quality and the structure of its resource base to be well diversified. The bank’s development strategy proposes further growth in the volume of lending transactions, in part due to the expansion of its operations in a broader geographic area and an increase in the number of points of sale. An increase in the resource base is assumed based on attracting funds from domestic and foreign institutions, and also the issuance of Eurobonds and bonds denominated in rubles.239 The EBRD did not stop there in its collaboration with Russian banks; it began to collaborate with the public sector. In December of 2006, the EBRD began working very closely with the Russian Federation Ministry of Economic Development and Trade, when it organized a road show in London for the first Russian concession project, called “The Western Speed Diameter.” Currently, the results of the preliminary selection of companies interested in this project have been tallied. They include: ALPINE Mayreder Bau GmbH, FCC-Contryccion S.A. Strabag AG, Bouygues Travaux Publics S.A., Hochtief PPP Solutions GmbH, Mostotryad, OBRASCON HUARTE LAIN, S.A., OHL Concesiones, S.L., Transstroi, Bechtel International Inc., Enka Kholding B.V. and others.240 In June 2007, the Russian Federation Ministry of Economic Development and Trade and the European Bank for Reconstruction and Development signed a memorandum on financing infrastructure projects in the Russian Federation. The document was signed as part of the XI St. Petersburg International Economic Forum. On behalf of the Ministry of Economic Development of the Russian Federation, the memorandum was signed by the Russian Federation Minister of Economic Development and Trade, the Director of the EBRD from Russia, German Gref, and on behalf of the EBRD the memorandum was signed by the bank’s president Jean Lemirre. The purpose of this document is to develop the strategic intentions of the bank to expand funding for large-scale investment projects geared toward developing Russian infrastructure. As per the memorandum, by July 1, 2007, the EBRD promises to provide Russia with a list of requirements identified by the bank for financing infrastructure projects. A team of experts will be created to review the investment projects, and, according to the press center of the XI St. Petersburg Economic Forum, both sides will bring in qualified specialists.241 The memorandum strengthens strategic commitments that were secured in Kazan in May of 2007, during the EBRD Board Meeting. It is expected that by 2010, the sum total of bank financing dedicated to implementing large-scale infrastructure projects in Russia will be approximately five billion dollars. And, if the long-range prospects of a public-private 238 “Rating Agency ‘Extra RA’ Gave Transkapitalbank a Credit Rating of ‘A+’. A high level of creditworthiness with stable prospects”; available at http://www.transcapital.com/about/news/2007/08/detailed/506. 239 Ibid. 240 “RBK, ERBD, and MERT signed a memorandum on financing infrastructure projects in the Russian Federation,” June 10, 2007, available at http://www.rambler.ru/news/economy/0/20543623. 241 Materials of the Ministry of Economic Development and Trade, 2007, available at www.economy.gov.ru/. 168

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partnership in the country are considered, then the size of this figure might be significantly greater. Special attention should also be given to the unique Strategic Master Plan developed, under the leadership of Academician Ashot A. Sarkisov, on Utilizing Military Seafaring Vessels in the Northwestern Region of the Russian Federation.242 This work too was conducted by contract with the European Bank for Reconstruction and Development, within the framework of the Statement by G8 Leaders “The G8 Global Partnership Against the Spread of Weapons and Materials of Mass Destruction,” signed by the G8 in 2002 during the meeting in Kananaskis, Canada.243 As a result, we have practical examples of how to effectively solve this problem, namely, by means of establishing partnership relations between government agencies and private business. MEETING BETWEEN U.S. AND RUSSIAN TECHNICAL EXPERTS FROM THE WORKING GROUP ON THE CIVILIAN NUCLEAR POWER INDUSTRY At the beginning of 2006, the Presidents of Russia and the United States launched similar initiatives (Global Infrastructure for Nuclear Power Engineering – Russia;244 Global Nuclear Energy Partnership – U.S.245), directed toward collaborative efforts to develop the nuclear power industry on a national and a global scale. Both initiatives encompass three interrelated elements: 1) The creation of favorable terms for introducing new nuclear power plants with thermal reactors in their respective countries in the very near future. 2) The development of closed nuclear fuel technologies246 to solve the problems of accumulating spent nuclear fuel (SNF) from thermal reactors, and fuel supply for the long-term development of nuclear power. 3) The introduction of new institutional measures directed toward solving problems of non-proliferation by limiting the use of technologies to enrich uranium and process SNF. Given the similarities in both the goals and the approaches to reaching those goals, the presidents of Russia and the United States at the G8 meeting in St. Petersburg on July 15, 2006, made the decision to form a Russian-American Working Group to determine the directions of 242 See the paper by Academician Ashot A. Sarkisov in this volume. 243 For further information regarding the G8 Global Initiative to Counter Nuclear Terrorism, see http://www.g8.gc.ca/2002Kananaskis/gp_stat-en.pdf; accessed on April 6, 2008. See also, http://www.state.gov/t/us/rm/69124.htm; accessed May 1, 2008. 244 For more information, see: www.ippe.obninsk.ru; accessed July 13, 2008. 245 For further information regarding the U.S. Global Nuclear Energy Partnership, see http://nuclear.inl.gov/gnep/index.shtml; accessed April 6, 2008. 246 The Russian Corporation TVEL notes that “(t)he closed nuclear cycle envisages transportation of irradiated fuel assemblies to radiochemical plants to extract unburned uranium rather than transportation to disposal site. Recoverable uranium could amount up to 95 percent of initial uranium mass. Then, this material is subject to same processing stages as the one mined.” Presently the majority of countries use an open fuel cycle. For more information, see http://www.tvel.ru/en/nuclear_power/nuclear_fuel_cycle/; accessed April 6, 2008. 169

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global, bilateral, and mutually beneficial collaboration in the civilian nuclear power industry.247 The co-chair of the Working Group from the Russian Federation is the deputy director of the Federal Agency on Atomic Energy (Rosatom), N.N. Spassky. On December 15, 2006, the Working Group created a Plan of Bilateral Action with the goal of strengthening global and bilateral collaboration in nuclear power engineering. By order of Decree No. 86 dated February 20, 2007, Rosatom is responsible for coordinating the scientific and technical work and the technical support for planned Working Group activities in Russia has been placed upon the Federal Government Monopropellant Enterprise of the Government Scientific Center of the Russian Federation–Physics and Power Engineering Institute. The Director General, A.V. Zrodnikov, has been appointed deputy co- chair of the Working Group on behalf of the Russian Federation on issues of coordinating scientific-technical work. In accordance with the Working Group action plan developed March 13-14, 2007, the first meeting of the subgroup of technical experts on the overall vision, transuranium fuel, fast reactors, new technologies for processing SNF and waste management, as well as the export- quality of small- and medium-capacity NPPs, and nuclear data on actinides was held in the city of Obinsk. Russian and American experts discussed technical issues, as a result of which specific reporting materials were defined, and a preliminary agreement was reached with respect to objectives at the highest level for collaborative work in 2008. ORGANIZATION AND MANAGEMENT OF PARTNERSHIPS BETWEEN PUBLIC AND THE PRIVATE SECTORS In this section it seems advisable to focus on what are several important circumstances. First, there is the matter of existing obstacles and dangers, which should certainly be taken into consideration when organizing public-private sector partnerships. Second, the tools for this organizational process are of the utmost importance. And, third, the organizational-management schematics cannot function effectively without corresponding mechanisms of interaction. Obstacles and Dangers in the Area of Organization and Management of Public-Private Sector Partnerships In this particular kind of relationship, as in no other, bureaucratic red tape and programming, and procedural obstacles to collaboration hold a firm grip. As a rule, all of these are based on the danger of lapsing into customary corruption. Indeed, this is a real danger by virtue of the fact that the establishment of partnerships between the private sector (business) and the public sector (government) is done by people. According to data from the Center for Reputation Technologies, people involved in such relationships should be specialists in their own fields. 248 A special term has even been coined to describe them: GR-shiks. GR—government relations—means a connection to government 247 For texts of the Joint Statements between Russia and the U.S. during the St. Petersburg G8 Summit, see Appendix D. 248 Igor Dmitrev, “A GR in Russia is more than PR,” Center for Reputation Technologies, available at http://stra.teg.ru/library/econ/38/1/4. 170

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agencies without whose help not a single serious political or business project can be implemented. A GR specialist should form close, trustworthy relations between his employer and the government. This work should not have anything in common with common bribery. The task of the GR is to establish an informal dialog between public and private organizations in the interests of resolving specific problems. This is an extremely difficult task. According to an aphorism uttered by Assistant to the Minister of Industry and Power Engineering, Stanislav Naumov, GR is “Public relations and lobbying in a single small bottle: you can shake it up, but you can’t mix it up.”249 GRs are builders of strong bridges stretching from corporations into government offices. Effectively functioning partnerships between the private economic sector and the government should be established between partners who clearly understand their roles and the goals placed before them, and they should be given a clear set of rules of interaction. At the same time it should always be remembered that there is an inherent danger that the partnerships between the public and economic agents might be misused exclusively to serve their own interests. The process described here is observable in the majority of countries with a transitional economy, and it takes the form of corruption. These obstacles must be borne in mind when rendering assistance in forming partnerships between the private and public sectors in countries with transitional economies. Negative experience bears witness to the fact that the obstacles described herein can be overcome if partnerships operate within the environment of a strong civil society, in which the relationships function as a part of that society. The development of partnerships between the private and public sectors should therefore be built within the framework of a much broader goal, which can only be achieved on the basis of a long-term, step-by-step approach. International organizations could make a decisive contribution to this process. In the course of organizing partnerships, one inevitably comes up against internal difficulties that are inherently interagency in nature. Accordingly, Neither the United States nor the Russian government is organized for maximum efficiency in implementing cooperative nuclear non-proliferation programs. Some American participants argued that the interagency structure in the United States is fairly well defined, but that the process is often weak or non-existent, resulting in poorly coordinated project activity and, at times, duplication of effort. Such duplication, of course, leads to sharp criticism and even greater consequences, such as budget cuts, at the hand of Congress. In the Russian case, the interagency structure has been in considerable flux in recent years, with frequent reorganizations hampering understanding of exactly which agencies must participate in the decision-making process. Agencies not directly responsible for implementation have, as a result, had opportunities to hamper progress or, in some cases, to veto it outright.250 Moreover, in our case there are still legal obstacles in the form of an insufficiently mature legislative base in Russia and the absence of corresponding organizational structures and mechanisms. First and foremost a tax-relief mechanism for program participants is needed. 249 Ibid. 250 Overcoming Impediments, p. 28. 171

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Another extremely important organizational obstacle is the matter of establishing responsibility for the organization and management of public-private partnerships. This has not been resolved. As previously, there is still the impediment of visa issues in terms of establishing partnerships. The current system of issuing visas hinders both specific and overall goals of Russian-American collaboration in the sphere of fostering partnerships. And, above all of the impediments “reigns” the obstacle of financing, or more precisely, the difficulties in organizing allocation of funds. In essence, the difficulties accurately specified in Overcoming Impediments still exist, in particular those such as the length of time the procedures take to obtain a decision on funding even for International Science and Technology Center projects, the complexity of the mechanisms themselves for allocation and flow of monies, and export control. Tools for Overcoming Obstacles to Public-Private Sector Collaboration The impediments examined in the preceding section can be overcome with the aid of the following mechanisms: • appropriate allocation of bureaucratic leverage and obligations • establishment of strict responsibility among project managers for concrete results • official appointment of specific project managers with a very clear definition of the scope of their obligations and responsibilities • strict reporting for each period of work • control over the activities of GRs and the results of their activities • inclusion of a broad range of scientific and social institutions to work on well- grounded proposals to present to heads of state and parliamentarians on how to eliminate political obstacles to partnership relations • perfection of regulatory and legal foundations for maintaining public and private sector partnerships • development and introduction of changes to national legislation or new laws • perfection of mechanisms to develop and execute detailed Master Plans for concrete programs and specific topics • incorporation of new GR methods • development of new mechanisms of financial and economic support for ongoing projects with the participation of both the public and private sectors Each tool is worthwhile only when it is in the hands of a master. The most important organizational and managerial task here is the selection of this master and the assignment of his corresponding rights and specific responsibilities. To solve this task, the following are deemed possible: • Creation (for each specific problem) of a small joint coordinating committee at the ministerial level and at the level of joint consulting/coordinating groups comprised of leading scholars, specialists, and independent experts from both sides. • The joint coordinating committee will prepare, submit for approval to the interested parties, and report to its organizers for project approval (be it an algorithm, a 172

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mechanism, or a detailed plan), a resolution of the problem with proposals for candidates for the project manager position, his authorities, rights, and obligations. • Based on the results of the project review, the ministries will prepare an interagency, and when necessary, an intergovernmental agreement to approve the project manager, a detailed solution to the problem, and mechanisms to ensure fundability. Taking into account that the current question concerns attracting both governmental and private participants, a necessary requirement for creating joint consulting/coordinating groups is the inclusion within them of the most competent and responsible representatives of those private participants who came to this project. Mechanisms for Public and Private Sector Interaction Within the framework of the assigned topic, it does not seem possible to examine mechanisms for public-private sector interaction without taking into account the general interaction between states. As was previously noted, the interaction between Russia and the United States, both in political as well as in several other areas of interaction requires strengthening. The situation described in Overcoming Impediments not only remains relevant but the situation is actually deteriorating because of the bill passed in the United States entitled, The Iran Counter-Proliferation Act of 2007, H.R. 1400.251 It is for this reason that before all parties to the program lay massive and painstaking work in order to improve the situation. Independent of this, it is critical to bring to fruition the work of implementing all mechanisms of interaction, both between the governments themselves as well as within each government to complete collaboration between the public and private entities. Mechanisms of interaction could be implemented at various levels through: • intergovernmental collaboration • work within joint coordinating committees and consulting and coordinating groups • interagency agreements • interaction within the framework of the international community • perfection of methods by which project managers work • informal conferences, seminars, meetings, and other similar events to attract independent scholars, specialists, and experts • personnel exchanges • joint selection of project topics and funding from federal monies earmarked by the governments to eliminate repercussions from the Cold War • disseminate positive experiences of interaction • joint definition of priorities within the framework of joint projects • joint decisions on the issue of defining concessions and exemptions • “special” decisions with the goal of moving work on jointly selected projects forward • designing and implementing funding algorithms (diagrams) approved to carry out projects and programs 251 Arkady Orlov, “U.S. Congress Toughened Sanctions Against Iran and Banned Nuclear Collaboration with the Russian Federation,” RIA Novosti, September 25, 2007. 173

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Not to under appreciate the role of all mechanisms of collaboration, it is necessary to note that in all practical terms, funding is the most important issue. This is particularly relevant, in light of the latest events in Russia to create completely new structures—government corporations. Currently, the President of Russia has introduced a bill the State Duma to create a government corporation called Rostekhnologiia. Plans are being discussed to create government corporations out of Rosatom and Rosavtodor. According to experts, structural changes are expected in other industries as well. On the one hand government corporations represent the interests of the state, and on the other hand they could create stock companies, engage in entrepreneurial activities, purchase shares of stock, take controlling interest of government shares, and so forth. Thus, it may be stated that in Russia a new form of ownership is coming into existence together with the creation of entirely new organizational structures, that of government corporate ownership.252 In the context of this paper, it would be entirely logical to suppose that their activity nearly corresponds to the topic at hand, namely, the establishment of partnerships between the public and private sectors. Project Funding Issues in the Area of Implementing Public and Private Sector Partnerships The basis for analyzing project funding issues in implementing public and private partnerships is described in Overcoming Impediments. There it is stressed that “Financial issues are central to cooperation, which brings both problems and opportunities. It is important to attain a sufficient level and balance of resources (financial, intellectual) from both sides for project implementation/management to succeed.”253 A. Problems 1. Risk that program goals will be subverted to financial goals: if those responsible for implementing a program are primarily interested in spending funds up before the end of the fiscal year (‘pumping the money out’), they are likely to subvert the program’s goals if real progress is not achieved. 2. Risk that political needs and goals will overtake program goals. B. Opportunities 1. Diversification of the funding sources (stakeholders) may improve chances for success and increase project managers’ control over the use of resources. Programs funded from multiple sources come with their own built-in constituency of people and organizations for whom successful cooperation is in their own best interest. 2. If a program is funded by private, non-profit groups, it can have a distinct advantage, particularly when it only involves work in the former Soviet Union and can be successful independent of U.S. government action or inaction. 3. As Russia’s economy slowly grows stronger, opportunities for cost-sharing between the United States and Russian Federation will increase. 252 Ivan Ilov, “A Military-Industrialist Courier,” October 10, 2007, and “New Mechanism for Managing the Economy. The Scope of Work of State Corporations Requires Comprehensive Financial Security of their Interests.” 253 Overcoming Impediments, p. 104. 174

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4. The incentive to proliferate may be reduced via creative methods of reducing or eliminating the profitability of proliferation. The “HEU Deal” might be seen as an example of this approach.254 5. The pro-business, anti-government stance of the U.S. administration predisposes it toward commercial approaches to addressing problems. Advocates of cooperation should therefore look for opportunities to accomplish goals through commercial endeavors. But such programs are only successful in situations where the paths toward accomplishing program goals and making a profit are indistinguishable. It is unrealistic to expect this to be true in most of the cooperative threat reduction work that remains to be done. 6. Programs are most effective when the United States is willing to spend the money necessary to accomplish goals and is prepared to pay fairly for work that gets done. Program staff should be aware of their Russian colleagues’ perspective about money, be able to see through Russian modesty to the roots of a funding request, and be as supportive as possible. Missed cues can lead to setbacks in cooperation that are much more costly than the requested help would have been.255 Difficulties Related to Implementing Mechanisms for Project Financing in Public-Private Sector Partnerships In general terms, when addressing the subject of funding difficulties on a large scale, one could add to the difficulties and obstacles enumerated above. Emphasizing and elucidating several of them, and specifying new ones. Undoubtedly, one could include the following: • selection and approval of project and program topics to be financed and implemented by both the government and the private sector • approval and distribution of funds among (project) executors • creation and approval of a mechanism for determining the manner in which funds will flow, ensuring complete transparency of financing and reporting • resolution of the issue of overhead expenses • establishment of a procedure for unsecured lending • creation of a mechanism of incentives and encouragement for experts to work on approved projects and programs • establishment of steps for comprehensive financial protection (insurance) for customers of joint projects and programs Possible Tools and Mechanisms for Overcoming Funding Challenges Undoubtedly, the tools and mechanisms indicated above, can also be applied to the elimination of obstacles in funding projects and programs whose implementation has made public and private entities operational. It follows then that it is necessary to consider the experience in overcoming difficulties in executing work to salvage Nuclear Powered Ballistic Missile Submarines, Nuclear Powered Cruise Missile Submarines, Nuclear Powered Torpedo 254 For further information regarding the HEU Agreement, see http://www.nti.org/db/nisprofs/russia/fissmat/heudeal/heudeal.htm; accessed April 6, 2008. 255 Ibid. 175

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Submarines, as well as the International Project on Innovative Nuclear Reactors and Fuel Cycles, Multilateral Nuclear Environmental Program in the Russian Federation, International Nuclear Safety Program, and other projects and programs. The experience gained by Russian institutes such as the All-Russian Scientific Research Institute of Theoretical Physics, All-Russian Scientific Research Institute of Experimental Physics, Nuclear Safety Institute, RAS, and the Kurchatov Institute should also be considered when conducting a host of research and development projects. In addition, the following algorithm seems entirely logical: 1) Within the framework of the RAS and the NAS, a competition could be announced to select topics for joint projects and programs. The process for finding topics for joint projects and programs might proceed as follows: • nonprofit organization “A” forms and presents a draft work program to create a technology and an experimental sample of a laser complex for deactivating salvaged metalwork, nodes, and reactor elements from nuclear power plants, nuclear submarines, and factory equipment for the nuclear fuel cycle by using laser radiation • State Monopropellant Factory proposes a project to create laser complexes to control atmospheric pollution by using physiologically active substances • open Joint Stock Company of Scientific Research Institute “S” requests the review of two programs at once: the development of a clean and safe “Resonance- dynamic fission and resonance-dynamic synthesis plasma electronuclear reactor;” and a work program to create the means to protect people and equipment from the effects of ionizing radiation sources and means to effectively protecting employees at nuclear power plants without destroying the nuclear energy installation and others 2) Scientific research institutes, companies, ministries, agencies, banks and other organizations would then submit for review their joint projects and programs, along with a feasibility study demonstrating the need to fund these projects and programs with funds provided by the G8 and other organizations to reduce the nuclear threat, and to eliminate repercussions of the Cold War, and so forth. 3) Committees from the RAS and NAS could then review the proposed topics of joint projects and programs for competition at joint meetings, and by a simple majority vote, select the most practical of them. 4) At subsequent joint meetings, the RAS and NAS committees could prepare proposals for the composition of the joint coordinating committee for each individual problem, and they would be approved at the ministerial and agency level. 5) The joint coordinating committee could prepare and coordinate with interested parties, and report to their organizers for project approval (algorithm, mechanism, detailed plan) a solution to the problem, along with recommendations for candidates for the project managers, a detailed plan for solving the problem, and mechanisms for funding it. 6) Assuming, for example, that through the process, the “S” project were to be approved, the company would become the chief implementer of the work. The Director General of “S” would be appointed Project Manager. 176

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7) The project manager could present a detailed work plan, deadlines, a more precise technical feasibility study, and a timeline for the financial feasibility study to the joint coordinating committee, as well as to the executors. 8) The EBRD, having funds obtained from the G8 and other countries, could draw up a diagram for reliable cash flow to implement the program work selected. It is logical to presume that it would be most expedient for these funds to be sent through the Russian bank of which the EBRD is a shareholder, and in which there are employees formerly involved in activities related to the topic of the program selected.256 We will assume for a moment, that this is shareholder commercial bank “T” and that it employs a specialist, specialist “N.” Then the EBRD, bank “T,” and its specialist are approved in the financial-economic schematics to fund the work on the approved program. Specialist “N” hence is included in the joint coordinating committee and becomes the bank curator for the chief execution of the work, and he opens settlement accounts with bank “T.” Bank specialist “N,” using his past and current experience, can effectively control the spending and competently inform the joint coordinating committee of this spending, which will in turn be in charge of the project manager and his staff. A necessary condition for the process above to work effectively is compensation for the work of all the participants as early on in the functioning stages as possible. It goes without saying that the algorithm presented above is simply a preliminary outline of a real, possible mechanism to implement a project within the framework of genuine government partnerships, in this case also involving the RAS, NAS, ministries, agencies and others, together with the private sector, the open JSC NII “S,” Bank “T” and the cooperative of executors. CONCLUSIONS AND RECOMMENDATIONS 1. Obstacles to establishing public-private sector partnerships truly exist; however, it is possible not only to mitigate them but also to eliminate the majority of them altogether. 2. There are hopeful prospects for the development of public-private partnerships in Russia. An affirmation of this is the creation of government corporations. 3. An important and essential element of developing partnerships between public and private entities is perfecting the legislative and regulatory bases. 4. The highest priority, and the most important element in the business of creating partnerships between the public and private sectors, is to expedite the development of instruments and mechanisms to provide financial and economic support to joint projects and programs. 5. The author is in full agreement with the conclusions of Overcoming Impediments: 256 Former military personnel work for a whole series of shareholder commercial banks in Russia and are in essence doing what they used to do, working on issues of using nuclear power installations on nuclear submarines, nuclear weapons, disarmament, and providing technical safety to personnel, weaponry and military technology. 177

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• “the overall tenor of the cooperation would improve if the United States and Russia could return to a vigorous agenda of confidence-building activities”257 “both nations would do well to draw from a variety of solutions to problems”258 • “a solution set is a useful goal, rather than a single right answer”259 • 6. In order to resolve problems related to the topic being discussed in Russia, it is entirely possible to use entities such as state corporations, including the state corporation Rostekhnologiia, which is being created. 257 Overcoming Impediments, p. 118. 258 Ibid. 259 Ibid, 119. 178